High-risk merchant account — what it is and how it works

Businesses that are characterized as “high-risk” will be needing a high-risk merchant account to simply accept debit and charge card payments. A high-risk business is one that's a better likelihood of chargebacks or fraud (and certain other characteristics as well).

However, there is no central authority or framework in the payments industry that determines the danger factors associated with a business. Instead, every bank and every payment processor has a unique set of standards.

Some payment solution providers may state upfront that they don't serve certain industries. Others will typically seek detailed information about a business to ascertain risk—depending on which their application might be accepted or rejected. Ultimately, all of it boils down to a payment processor's internal criteria and outlook towards risk management.

What Factors Determine In case a Merchant Is High-risk?
Businesses from certain industries that innately carry higher risks might be automatically flagged as high-risk businesses. Here are a few examples of high-risk industries:

CBD (Cannabidiol), e-cigarettes, and vape
Stun guns and tasers
Credit repair
Multilevel Marketing (MLM)
Adult products/services
Pawnshops
Supplements and nutraceuticals
Tech support
Search Engine Optimization (SEO) services
Besides this, there are lots of other factors that can lead to labeling a business as “high-risk”:

Some processors could label you as “high-risk” if you are a new entrant and haven't processed payments before.
Poor credit records or low credit scores for defaulting on loans, etc., are other significant factors. In case a processor has previously place you on the MATCH list, that might increase your risk perception as well.
Exactly the same goes for businesses which have controversial product lines or operate on a smooth legal slope.
Businesses that are overly dependent on international sales may also have high-risk scores. This is due to the relatively unpredictable economic dynamics abroad.
Industries that are highly regulated by legislation or governments will also be labeled “high-risk.”
How Do High-risk Accounts Change from Regular Accounts for Payment Processors?
Being called a high-risk business can appear to be quite daunting. A processor may simply decline your application. Alternatively, however, a payment processor might choose to offset your inherent business risk by enforcing some measures.

There are several ways by which a payment processing company may mitigate its risk. They are also the prime differentiators between high-risk and regular merchant accounts.

Longer application process
If you're applying for a high risk merchant account providers in USA, a merchant services provider may require very detailed information to analyze your risk profile or study past patterns of your finances. Typically payment processing companies will check your organization'processing history, partnerships, and even your individual credit history (to be cautious about bad credit, etc.).

Higher payment processing fees
For standard small businesses, payment processing fees might be 0.3% above the rate of interchange. However, for a high-risk merchant account, this may go around 1.5% plus the interchange rate. While interchange fees can vary greatly from company to company, in general, higher risk will incur higher fees.